Thursday, October 08, 2009

We are only seeing the beginning. Bush's legacy will continue to change the Country and the World in profound ways. The faltering U.S. currency is one way that the nation is losing its position in the World. Right now, the U.S. dollar is seen as the safest bet as the Worlds reserve currency.... but World powers are already in the process of switching to Gold, the Euro and other currencies. The U.S. is currently dependent on investment from other Countries to manage the massive U.S. debt. Without it, the U.S. will have a hard time meeting its financial obligations and maintaining a strong currency. Some believe the U.S. may be headed for a "Fall of Rome" scenario.

It's just unfortunate that Obama will be the name and face that Republicans will conveniently attach to everything that goes wrong from here on out as they try to re-write history for Cheney and Bush. Obama will be blamed for the Country's decline.

I have been warning about a sort of day of reckoning that the U.S. would eventually have to face. The path we were on (even before the economic collapse of 2008) was unsustainable. The economic crisis just means we will reach the day of reckoning a lot sooner. We are looking at 10-20 years (that's being gracious....it may be closer to 10 than 20) until we will finally reach a point where the debt becomes too big to manage. Other nations switching their holdings from dollars to other currencies will accelerate the problem. Right now the national debt is at least $11-12 Trillion. It costs several $ Billion every year (a huge chunk of the annual budget) just to pay the interest on the debt (not even touching principal)...funds that go to those other Countries so that they will continue to hold our debt. But right now...the interest rate is so low that we can't keep them happy (they are getting a low return on their investment). But the Federal Reserve is trapped in a position where it can't raise those interest rates...because it would be harmful to the U.S. economy.

To put it in plain terms... the U.S. is broke. And now we have a situation where tax revenues are going to be lower due to unemployment and under-employment. And I haven't even mentioned the Trade deficit.

The only thing helping the U.S. right now is its legacy position.... meaning that we are so large (still the Worlds largest economy) that any changes will be gradual for the most part. It's not in the best interest of China, India, the Middle East or Europe to have a crippled U.S. economy. If the U.S. is crippled, then they lose the worlds biggest market for their own exports. Propping us up is working in favor of the Worlds developed and emerging nations (for right now). That's not going to last much longer... especially with all of the diplomatic/political crisis around the World, and uncertainty about U.S. economic clout down the road.

There are only a few ways that the U.S. could get itself out of the hole that it's currently in. Unfortunately, politicians lack the leadership to make the changes necessary....because the solutions involve changing tax policy. Republicans, and even some Democrats now, have turned "Taxes" into a bad word. Politicians don't even want to have the conversation....out of fear that Conservatives will get rid of them. But if something isn't done to generate revenue in the near future (over the next decade) these politicians may not have to worry about their Congressional seats anymore... because the USA as we know it...may not be around.

1. The U.S. could dig out of this by creating a national sales tax..... on top of maintaining (and even raising) some payroll taxes to pay down the debt every year; at a minimum $150-200 Billion a year- roughly the same amount of money we spend on Iraq and Afghanistan every year.

2. At the same time Congress would have to slash spending, and keep spending low over the next 10-20 years (including staying out of wars that drain the Treasury.....something that would be extremely difficult for the U.S., since war is an American addiction worse than oil).

3. The U.S. would need to become energy independent - the nation would have to pioneer the development of other forms of energy (fusion, solar, wind, hydrogen, ethanol).

With a concerted effort, the U.S. could wipe away its debt within 40 years or so (perhaps even less time)...and could get back on top.

But this is not very likely in the current political environment.

And it's incredible that much of this can be traced back to hanging chads in Florida almost a decade ago. Although Carter, Reagan, and George H.W. Bush contributed in some ways to this problem as well... But the national debt increased exponentially under George W. Bush.

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"The two parties have combined against us to nullify our power by a ‘gentleman's agreement' of non-recognition, no matter how we vote ... May God write us down as asses if ever again we are found putting our trust in either the Republican or the Democratic Parties." -- W.E.B. DuBois (1922)